Monaco 'blocked fraud inquiry which came close to princess'

Senior justice officials in Monaco blocked an investigation of Italian mafia activity in the principality because it was getting too close to Princess Stephanie, according to a book published by a French investigating magistrate who worked there in the 90s.

Charles Duchaine said his inquiry uncovered evidence against a man alleged to have ties to the princess.

The allegation is a further embarrassment to the Monaco authorities, who are under fire from France and the international community to clean up the principality's tax system, which attracts money earned from arms, drugs and prostitution.

It is also a blow to the Grimaldis, Europe's longest reigning royal family.

Monaco nurtures an image of respectability and discretion but Mr Duchaine, disgusted by his experience there in 1995-99, portrays it as a place where money talks and the law obeys.

"I only tried to do my duty," he writes in his book, Judge in Monaco.

"I say 'tried', because Monaco is in reality a tax haven which often circumvents the bilateral agreements signed with my country.

"Here, money has no smell and the justice system is blocked at every level to better protect the rich investors who are behind the fortune and prestige of this princedom."

Monaco's desire to present itself as a law-abiding playground for the rich is exemplified by the way the mafia inquiry was stifled, he said.

He told Le Monde that, acting on a warrant from an Italian judge, he was looking into a fraud involving the Mafia which led to a man then alleged to have connections to Princess Stephanie.

When the Monaco authorities realised that the inquiry involved accusations of money laundering he was told to cancel the warrant documents and not to communicate with the Italian authorities, he said.

"What I deplore most of all is the way the story was hushed up," he told Le Monde.

"If the [officials] had been honest, they would have told me: 'This case directly hurts the royal family, it is our responsibility not to follow it up and not to give you the case.'

"They wanted to win on both fronts: shelve the case while making out that they were cooperating. Monaco's obsession is to preserve an image of respectability."

There is no suggestion that Princess Stephanie was involved in anything criminal or knew of any alleged mafia connections.

Patrice Davost, the director of judicial services, told Le Monde: "The criticisms contained in Mr Duchaine's work are no longer relevant.

"Monaco magistrates, even now, are fighting with no holds barred against organised crime and money laundering.

"I have not been submitted to interference from the prince [Rainier], nor from an adviser, on any case. We are free to investigate as we see fit."

A survey by the Bank of France shows there were 340,109 bank accounts held in Monaco in 1998, 60% of them in the names of non-residents.

The principality has only 30,000 residents.

With gross domestic product of about $27,000 (£17,750) a head, about a third higher than France's, Monaco is one of the richest countries in the world.

It has more police officers in relation to its population than any other country, although their duties seem to consist mainly of directing traffic rather than solving crime.

The principality levies no income tax or inheritance tax on its residents, who include champion tennis players, racing drivers and pop stars.

There are no levies on capital gains, no taxes on interest-bearing accounts and no dividend tax, and its strict laws ensure banking secrecy.

The Organisation for Economic Cooperation and Development says that Monaco has failed to commit to transparency in its tax system and to provide effective help in tracking down tax cheats.

It may take measures against the principality if it does not commit itself to reforms by next year.